What percentage of U.S. architecture and design firms will truly succeed in 2004? How will they achieve this? How might you? This issue will look ahead to imagine the next 12 months forward to January 2005.
What percentage of U.S. architecture and design firms will truly succeed in 2004? How will they achieve this? How might you? This issue will look ahead to imagine the next 12 months forward to January 2005. We’ll interview leaders of the design professions to discover their own ideas on goals, possibilities, and new pathways to success.
This issue is fundamentally about vision. Seeing your role in the future. Leading architects and designers have a clear (and agile) vision of the future. Expressed individually, they may even camouflage it somewhat. But each has a vision. When they have lost their vision, they have lost their direction and it won’t take long for them to lose their best employees—their human capital—their future success will be fleeting.
We have proved consistently over the last nine years, that those who study trends and new technical applications often anticipate where the new opportunities will be. While it is true that you can’t predict the future, you can indeed create it. We expect significant changes in this industry. Achieving indispensable value in this dynamic landscape of opportunity is exactly what the marketplace will be seeking.
This need, understood by value gap analysis, is creating a bigger playing field and a positive redefinition of professional practice. We believe that this is exciting for both professional satisfaction and for building stronger firms. On the horizon, we see specific new ways to bring ideas to life that add greater value in the marketplace. You, too, can set yourself on one of the progressive courses to the future.
The Salk Institute’s Rusty Gage, Ph.D., a pioneer in the field of neuronal stem cells, says the brain generates an estimated 2,000 new neurons a day, running the gamut from place and face recognition to sense of smell. Throughout life, including our most senior years, there are opportunities to access and use new brain neuron growth. Gage’s colleague at the Salk Institute, Terry Sejnowski, Ph.D., a Senior Fellow of the Design Futures Council is working on new mathematical models of the internal circuitry of the brain’s visual systems. We have come to understand now that the scientific revolution is uncovering new reasons to believe that design will be an even greater expertise factor in the future economy and even more relevant globally.
Richard Farson Ph.D., another DFC Senior Fellow and President of the Western Behavioral Sciences Institute in La Jolla, says: “We often forget that almost everything derives its power from its context. A teacher may seem excellent because so many are mediocre. Honesty is so powerful because it exists against a backdrop of almost constant deception. Similarly, a design may work well only as long as it is different from the conventionality of what existed before. But if it becomes the standard, it may lose its power. That is why most new management techniques work for a while, and then don’t. And it is why constant innovation is the continuing requirement of leadership.”
You Can Deliver on Growth Goals
Some firms will have an opportunity to grow significantly again in 2004. Increasingly, firms will measure growth in ways that de-emphasize number of staff. The reason is because of productivity increases and this means revenues may increase while staff size may remain constant or even shrink. One firm in the Mid-Atlantic States reports moving from $94,000, to $108,000 to $121,000 in revenues per employee from 1999 to 2003, while the quality of work got better2. This all happened during a painful recession where approximately $2.8 billion in professional design fees evaporated in the U.S. Those fees are coming back—we see 3.4 percent growth in fees nationally (to approximately $24.5 billion)—but firms will be cautious about large staff expansion. Instead they understand that there are new efficiency models and benchmarks to consider. Process innovation, driven by advances in technology and better management, is a distinguishing characteristic of leading architecture, design, and engineering organizations. Their secret? Efficient processes that deliver quality services consistently—and more profitably.
Professional practices are an important part of the new supply chain; one that’s more efficient and more robustly innovative. Designers are streamlining their processes and have built in agility to rapidly respond to changes in evolving supply chains and the complexity of the macro and micro economies.
Typically design firms with say 15 employees will have revenues of approximately $1.65 million. Depending on their own micro-economy and their specialization they may grow to 15 or 17 FTE staff and pass the $2 million threshold in 2004. To do this, a firm’s leadership knows that they need to change their metrics.
It is a myth that change happens easier in small organizations. The variable is leadership. Today you can transform a 150-person firm as fast as a 15-person firm. For 1,500? Yes! You can consolidate functions, install new technologies, new behavior patterns, new goal reporting structures, and instead of talking about change you can push through toward the future—a real-time, relevant professional services firm future.
Hard times have prevailed for a majority of architects and designers in the U.S. The AIA released information late last fall that their members under-performed the rest of the economy between 1999 and 2002. Billings at firms were up just 2 percent, compared with 4 percent growth in the overall economy. Still, hundreds of leading firms grew significantly during this period of time, often by double digits. There is resurgence right now and it is happening in every state and almost every sector of the economy. The big winners are likely to be innovators and highly creative types who examine and understand new opportunities. This is true in most market sectors, which we’ll expand upon later in this issue.
We expect continuing frustration with new graduate salaries (still regularly below $36,500 in architecture and engineering) but overall we see reason for optimism. It may be frustrating, but for those with talent and persistence the next few years should provide plenty of opportunity for creative young professionals as well. They no longer have to climb the traditional ladder to the top; they can leap over tired, bundled, whining 50-year-old designers who are only looking into the rear-view mirror.
Trends that Will Impact Design Organizations
In Greenway’s offices in Atlanta where many of us work, we have movable white boards in the offices, studios, and in the Ostberg Library of Design Management where we post news about the latest trends and changes in architecture, engineering, design and construction. At any given time we are studying approximately 35 trends more or less. We also explore these during our think-tank sessions, our conferences and summits. These include the major building sectors and each of the design professions (architecture, landscape architecture, engineering, graphic design, interior design, planning, industrial design, design management) and others (owners, developers, facility managers, contractors, subcontractors, real estate professionals) in the construction industry.
Here are 10 of the significant macro trends that will affect how you will achieve your personal goals differently in 2004-05:
1. Developers and large corporations who own real estate will embrace green and sustainable design at aggressive new levels. They will find financial reward in saving the planet and they will be more evangelical than in the past. They will expect design and construction organizations to lead, innovate, and prove their competency.
2. Innovation and creativity will be valued at new levels. Process improvement will go beyond technology to management systems, behaviors, and ideation sessions. Design firms can move innovation to “Olympic champion” levels where they will outperform benchmark standards, as we have known them.
3. There will be an emerging small firm advantage. In a recent think-tank ideation session there were 38 reasons identified that clients often prefer small design firms. These reasons can become cultural aspects of medium and large firms too, which choose to cut complexity and bureaucracy from their stasis cultures and install smaller operating units. Clients will seek distinguishing design talent and a confidence in their “relationships” of service delivery.
4. Demographics and population shifts will open new opportunities and close down others. Population crisis will decelerate somewhat globally (choice and disease are prime drivers) and in the U.S. the aging baby boom will expand key markets in health care, senior living, sports, recreation, and residential. We may be able to engineer longer life, cells and tissues, and biotech labs will get increasing private sector and investment banking funding for expansion.
5. Corporations will increasingly start their own “design firms.” They will demand faster response and take more control with their own “hothouse” design studios that will drive design solutions while also outsourcing significant projects to private firms they trust. They will choose to work with those firms who have proven their value and who can measure their relevance to the client by the new metrics of value.
6. Security and natural disasters mitigation and response will require new design team expertise. The future will not only require more experts in interior and architecture security and safety, but the increasingly predictable natural disasters will require an army of design and construction talent as well. New technology will simulate natural disasters before they happen. Professional firms will have safety, security, and disaster practice experts. Why? Beyond terrorism, half the world’s mega cities with multimillion populations are located near potential magnitude 7.5 Richter scale quakes.
7. More corporate executives and clients will blend their home and work lives –not balance them. Interior designers are making corporate offices more home-like and more client groups are giving design assistance to offices at their employee’s home. Mobile computing makes for ubiquitous work solutions. The design professions provide new solutions and they actually become the sought after lifestyle, the prototype that others will look to.
8. Intelligent and integrated buildings will become the norm. They require sophisticated professional service delivery. Smart walls, floors, and ceilings will provide a human-technology connectivity making for productive and conversation interfaces with functions only limited by design and construction imaginations.
9. Globalization is creating increased competition for U.S. firms. The best human capital including design talent will rise to pivotal positions forcing increased efficiency in the construction industry and lowering professional service fees. Globalization will also create new challenges that designers must learn how to solve. Eighteen percent of our readers work with global projects. We’ll see around the world the further development of the “A” players (the ascendant class of designers.) Fee pressure will intensify further.
10. Speed to market is forcing new fields of collaboration, including advanced integration models, and more sophisticated forms of Internet project management and teaming models. Firms will come to recognize the importance of speed + quality. These are no longer mutually exclusive concepts, yet only a small minority of firm leaders understand how to make this strategic advantage a new reality today. There will be a continuous process of “raising the bar” to enhance overall performance vitality.
Rallying Behind Innovation
Times change. Back in the year 1900 it was common to work a 59-hour week. And the average architect was making about 32 cents an hour. In 1950 the median income for an architect in the U.S. was $11,200 annually. They worked on average 50 hours per week and were making about $4.31 per hour.
I have just returned from speaking at Midwest university and this experience reminds me how different the context of professionalism is today. Incoming freshmen last fall had never seen a rotary-dial telephone. The statement “you sound like a broken record” means nothing to them. They have lived a lifetime that has always included AIDS. For this generation roller-skating has always meant in-line skating and Jay Leno has always hosted “The Tonight Show.” The typewriter? An antique.
Times change. University students today who are planning on going into the professions are mostly gender balanced. There are more women in architecture and more men in interior design. A quick glance at a few programs reveals the following. At the University of Virginia, 54 percent of students in the architecture school are women. And at the University of Southern California 50 percent, the University of Pennsylvania 51 percent, and at the University of Kentucky, 60 percent.
The number of women entrepreneurs is growing 2-3 times faster than the number of men. More entrepreneurial business-minded individuals are going into the professions, because in architectural practice today there are thousands of practitioners making more than $200,000 per year. A recent gathering of female architects in their 40s revealed that several principals of firms expect more than $350,000 annually. Women constitute 43 percent of Americans with a net worth of a half-million dollars or more and they significantly influence 75 percent of financial decisions. According to author Tom Peters, between 1970 and 1998 men’s median income rose by 0.6 percent (inflation adjusted), while women’s median income rose by 63 percent. (This is not a typo.)4 Peters, who recently authored Re-Imagine, Business Excellence in an Age of Disruption, says that in the past men designed, unthinkingly, for men. But in the future men and women will design together, with women and men in mind. We agree.
Clarity of Vision
I first met Norman Foster in 1980. Few architecture firms have had as much influence on our lives as Foster and Partners have. While their work in the U.S. is limited they have taken their bio-modernist design all over the globe. This is another firm that has its own distinct vision. Firms have a unique thumbprint. And at Foster and Partners it begins with the founder’s experiences with people and reading.
Foster grew up in Manchester in its run-down Levenshulme district. After discharge from the Royal Air Force he went to Manchester University School of Architecture and City Planning. He worked his way through college, once selling ice cream and another time working as a ticket taker at a local movie theater. Two books fascinated him. One was a work about Frank Lloyd Wright and another by Le Corbusier. After graduation in 1961 he went on for a Masters degree at Yale’s School of Architecture. He told me on the day before he was awarded the Gold Medal by the American Institute of Architects that when he came to the U.S. he had two key influences. First, the positive thinking about the future that he encountered, and second, the creativity that he saw in design and architecture. He met Richard Rodgers at Yale and his first project (their project together) was a factory in Sweden (Reliance Electronics). The partnership with Rogers was short-lived although they remain friends. In Sweden he broke new ground in modernism, and the firm continues to do so today. He is an environmental leader who reminds us that he was influenced the most by Bucky Fuller, and by Wright’s organic principles. The new Reichstag, for example, is designed to be powered by vegetable oil, reducing carbon dioxide emissions by perhaps 90 percent or more.
The vision of Lord Foster does not include micromanaging design or people. He oversees his teams rather than design everything himself. He does not overpower his staff with criticism but instead quietly asks strategic and probing questions and gets discussion going about working in collaboration toward great projects. Steel, aluminum, and glass are still dominant materials– but the assembly, sensitivity to sustainable philosophy, and processes are all continuously innovative. This vision results in great architecture that is at once easily understood, yet continues to be distinct, relevant, and “best of class” in its execution.
Design Solutions Transcend Past Limits
The largest client in the U.S. is the General Services Administration. Their Chief Architect Ed Feiner has infected the whole organization at GSA with a design excellence vision. He gets into the offices at 18th and New York Avenue in Washington DC most mornings at about 6:45 a.m. He works with a competent staff and he hammers home the tenets of design excellence in public buildings 24-7. Since his arrival in 1982 his work has inspired private architecture firms to achieve at higher levels. As a client, Feiner also comes across as a coach, often using his sense of humor to inspire. Each year the challenges that GSA faces are great, and Feiner is alert to see changes on the horizon. As a leader with a vision, Feiner understands his day-to-day work will not be glamorous, but difficult, with numerous headaches.
Some state governments have been infected positively by the GSA vision of design excellence in public buildings but most have a long way to go—Virginia for example. The state owns 11,000 buildings and has 1,350 leases. They have more than 100 state agencies that have often operated independently and most often without a vision. They lack coordination as well. Recently the state has hired CB Richard Ellis, the real estate services company to evaluate their property management practices and make recommendations on how the state can be more efficient in the future. According to CB Richard Ellis, they anticipate $30 million dollars in savings over the next few years. The vision: “We need to use assets more productively.” Other states, including Michigan, Wisconsin, Colorado, Texas and Florida are looking at reorganizing property management and in some cases considering outsourcing or privatizing management of the properties. The design professions and their quality based designer selection processes (QBS systems) will also be reorganized—most often for the better.
Re-designing a Design Museum’s Vision
A splinter group of board members at the Cooper-Hewitt convened last fall an independent committee to review the museum’s vision, mission, and management. While this process is ongoing it reminds me that organizations, both public and private, do not need to go through a crisis of leadership in order to reinvent themselves. And while it is often easier to get to a new vision than to implement it, the direction and an understanding of the institution’s core values need to be first understood in order to get the correct implementation. Without a vision though, commitment does not follow. The conflict in our institutions and organizations often results from financial mismanagement or the changing needs of stakeholders.
Sometimes organizations need to be reinvented. Other times however, basic communication problems just need to be fixed. Leadership changes can of course make a key difference. We believe that before leadership changes are made however, that the fundamental design of management systems, communications, and rigorous measurement of expectations should take place.
Good design processes sparked by imagination can create great visions. Great visions get committed stakeholders. Organizations that take short cuts will flounder time and time again.
Confronting the Skeptics—Strong Design Firms Will Be More Unique
Your experience will likely differ from some of the firms who have agreed to let us tell their stories here in DesignIntelligence. Still, the data that we monitor can support your growth goals. We’ll talk about money and the macro numbers and considerations behind those numbers, which we believe will be most relevant to you. But if your firm specializes in the niche of acoustics and auditorium design for instance, or designing environmental graphics for transportation systems in Northern Europe then our discussion will require your close examination of micro issues.
For the past four years, I have moderated the North American Construction Forecast Conference at the National Press Club in Washington, D.C., where Reed Construction Data sponsors a dynamic and valuable forecast experience. The economists tell us that there will be a 2.4 million-population growth per year for the next 10 years in the U.S.
Baby boomers today are at their highest income earning years and many are acquiring second homes.
While some firms have clients who are expanding their corporate facilities and building new office complexes, corporate headquarters, offices and interiors continue to be a tough marketplace. The national office vacancy rate stands at 14.2 percent and is expected to climb to more than 16 percent in the next few years. This rate stood as low as 8 percent in the late ‘90s but as you will recall it was well over 18 percent way back in the early ‘90s. There is some spotty good news but in very few cities. Trammel Crow recently told us of a new development push in Washington, D.C. Other cities with some strength in the office and corporate sector include Richmond, Honolulu, Wilmington, and Nashville. But the story is different in most other cities. For instance, Boston has 57 million square feet of downtown offices and about 17.7 percent is available for lease or sublease, up from 4.6 percent just three years ago. Rents are down approximately 40 percent or more in Boston and now average $33.50 per square foot per year. More cities will mirror Boston in the next 12 months.
We see a GDP increase for 2004 of about 4.2 percent with growth in 2005 at 3.5 percent. There is significant growth, but unevenly distributed. In the macro economic sense here are our sector-by-sector projections. Keep in mind this is our consensus forecast for architecture, engineering, design, and construction for the U.S. and local geographical areas will differ significantly.
Please see our “report card” on market sectors, opposite page.
But A Weakening of the Dollar
The world is full of wild card scenarios, so stay resilient. The markets can and will shift significantly—not unlike in the past several years. The recent cliff fall of the dollar has us worried (down approximately 35 percent compared against the Euro.) While the devaluation may be good in the short term for service and product exports, we look for a leveling out this year with perhaps 10 percent improvement before January 2005.
As we go to press, Bechtel and Parsons (as an alliance) have won the second big contract in Iraq. It will be more than $1.8 billion dollars in one of the most open, transparent, and well-run procurement processes in this countries history. A new process precedent has been set in Washington, D.C. which we hope will spill into other areas of government procurement. Ahead, we see perhaps $5-5.5 billion more design and construction projects in Iraq, bundled into about 15-20 RFPs. The Middle East will continue to be a tough market, full of opportunities where it will be difficult to control risks.
And here in the U.S. backlogs are expanding, with many of our subscribers reporting healthy numbers in the seven-to 12-month zone. We hope more firms will experience this good fortune.
A Strategy to Win
This A/E/C industry is a complicated business zone. It requires not only the ability to conceptualize and give physical form to the aspirations of the client, but also the management skill to organize and “choreograph” the activities of a multitude of team members, each of whom has a special contribution to make. Ideas alone do not make buildings or bridges. The plans and models are only the recipe—not the meal.
Your leadership role is to be an even stronger “downfield blocker”—to understand how every individual can contribute to the overall effort, and then clear a path so your staff can do their best work.
Design and construction professions are experiencing linear and non-linear changes. Don’t just plan—invent the future. Put in place a process that develops both your future vision and a sustainable professional practice model.
The time has come to redesign design—to discard the archaic preconceptions that have hindered the effectiveness and affected the self-image of the design professions. Re-imagine your success forward as we look to 2005. And along the way, we’ll report on your success as the year unfolds.
—James P. Cramer
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